Thought Leadership

The Biggest Advantage Community Financial Institutions Don’t Realize They Have

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June 15, 2018
The Biggest Advantage Community Financial Institutions Don’t Realize They Have
By Bryan Adler

Early in my career, I had the privilege of supporting community financial institutions (“CFIs”) to optimize their financial strength and grow their business. During my time traveling the country, meeting with clients, it was clear that these institutions are the cornerstone of their communities by sponsoring local organizations and supporting the growth of their economies. But it also became clear that they are not fully supporting the growth and profitability of their own business. The reason? As my clients would tell me, “We never have the data we need and don’t know what to do with the data we have.”

From then, it became my mission and obsession to equip CFIs with technology to solve real problems faced by CFIs across the country.

So, I dug in to the detail to see if this was a universal problem. What I found was remarkable!

According to McKinsey, 66% of lenders agree that the biggest challenge to portfolio profitability and growth is data collection and management. In addition, a staggering 30% of regulatory enforcement actions against financial institutions are due to data related credit administration problems; not meeting reporting requirements, incomplete data, etc. Devastatingly, an increasing number of these result in personal financial liability to bank management and directors.

This seems to be a real problem, but is it really worth focusing on? Don’t worry, a dozen Saturday nights later slaving over call reports, I got your answer! Yes!

After much research and analysis, I determined that community banks spend over $3 Billion annually on data collection alone, averaging approximately $500,000 per bank. This money is wasted on human resources manually collecting, keying and rekeying, the same data from countless decentralized sources. Even with these large current data collection costs, banks still do not collect all the valuable data available to them. This hinders their ability to perform basic blocking and tackling functions to stay compliant, let alone capitalize on their goldmine of data.

Are you convinced this should be an area of focus yet?! I would argue that data is a CFI’s second most valuable asset, after its customer relationships. Yet, no budget is allocated to implementing a data strategy…

Welcome to 2018. Customer demands are changing and the status quo is no longer cutting it. Thanks to significant advances, technology has allowed companies to comprehensively harvest their golden data faster and cheaper than ever before. What if I told you that CFIs are going to win in the data game by simply leveraging time tested technology? Well, that tech is available, and CFIs are ready to win!

So now that technology helped gather all the data available to me, who cares?

Non-financial institutions go to great lengths to access the financial, payment and transactional level information that is readily available to banks. Technology companies develop multi-million-dollar complex products and go through long integrations in the hopes of providing enough value to the customer to encourage the customer to provide the technology company with permission to access their financial data.

But why?! Well, because your data is extremely powerful!

Based on Cardlytics, a publicly traded financial data marketing firm, banks who properly analyze and action their data can increase the value from each customer by 30 times.

Imagine 30 times more revenue and broader customer relationships… Ok, I get it, our data is valuable… now what?

The Realm of Achievable Possibilities

CFIs have the upper hand when it comes to Artificial Intelligence and Machine Learning – accurate and comprehensive historical and future data is the fundamental requirement that CFIs already have. Yet, most data of immense value that is available to CFIs is being left on the table.

With all the pieces in place, by simply implementing a data strategy, the possibilities are endless:

Data is the second most valuable asset a CFI has, after its customer relationships, but banks do not even have a budget line to support a data strategy. The current data collection costs ($3 billion per year) most CFIs are not even aware they are spending, is not optimized without the use of technology to capture, organize and action this data.

I would urge CFIs to think about the benefits they can yield from proper data collection and management and implement a plan to capitalize on it. Most non-financial institutions value CFI data immensely, why don’t CFIs?

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